ASEAN-5 growth to continue but more slowly, says IMF outlook

Growth forecasts for the Association of Southeast Asian Nations-5 (ASEAN-5) for 2013-2014 have been revised downward by the International Monetary Fund (IMF), part of the overall slowdown in the world’s emerging economies.

In its latest World Economic Outlook (WEO) report, the IMF said global growth in the next couple of years is still in low gear, with the drivers of growth shifting to advanced economies.

Global growth is forecast to average 2.9 percent in 2013—below the 3.2 percent recorded in 2012—and to rise to 3.6 percent in 2014.

“Growth in major emerging markets, although still strong, is expected to be weaker than the IMF forecast in its July WEO update,” said the IMF. “This is partly due to a natural cooling in growth following the stimulus-driven surge in activity after the Great Recession. Structural bottlenecks in infrastructure, labor markets, and investment have also contributed to slowdown in many emerging markets.”

“This transition is leading to tensions, with emerging market economies facing both the challenge of slowing growth and changing global financial conditions,” said Olivier Blanchard, the IMF’s chief economist and head of research.

In the ASEAN-5 (Indonesia, Malaysia, Philippines, Thailand, and Vietnam), growth for 2013 is predicted at 5 percent, down 0.6 percent from the earlier forecast. The latest growth projection for 2014 is 5.4 percent, down 0.3 percent.

In Japan, the expected unwinding of fiscal stimulus and reconstruction spending together with consumption tax hikes will lower growth from 2 percent this year to 1¼ percent in 2014.

In China, growth is projected to decelerate slightly from 7½ percent this year to 7¼ percent in 2014. Policymakers have refrained from stimulating activity amid concerns for financial stability and the need to support a more balanced and sustainable growth path.

Among the advanced economies, the United States is expected to see growth rise from 1½ percent this year to 2½ percent in 2014, driven by continued strength in private demand, which is supported by a recovering housing market and rising household wealth.

In the euro area, policy actions have reduced major risks and stabilized financial conditions, although growth in the periphery is still constrained by credit bottlenecks. The region is expected to gradually pull out of recession, with growth reaching 1 percent in 2014.

“The changing global growth constellations have exacerbated risks in emerging market economies,” the WEO said. “Less U.S. monetary policy accommodation combined with domestic vulnerabilities in emerging market economies may lead to further market adjustment globally, with risks of asset price overshooting or even balance of payments disruptions.”

Moreover, old risks remain. They include unfinished financial sector reforms in the euro area, impaired monetary policy transmission and corporate debt overhang in some euro area economies, and high government debt and related fiscal and financial risks in many other advanced economies, including Japan and the United States. Geopolitical risks have also resurfaced in recent months.

Even if only some of these risks materialized, they would affect all economies through cross-border trade and financial spillovers. So the WEO highlights the risk of the global economy remaining stuck in low gear for a prolonged period.

“Pulling the global economy out of a protracted period of subdued economic performance will require, first and foremost, advanced economies to address old challenges, and also emerging market and developing economies to steer through their growth transitions with credible policies,” it said.